The InvoCare Limited (ASX: IVC) share price has jumped 5% to $13.70 this morning after the funeral, cemetery, and cremation operator announced a solid preliminary full-year result.
Key takeaways include:
- Total sales revenue increased 3.3% to $450.7 million year-on-year.
- EBITDA of $112.3 million, an increase of 6.5%.
- Net gain on undelivered prepaid contracts after tax of $16 million.
- Net profit after tax up 29.4% to $70.9 million.
- Earnings per share of 67.9 cents.
- Final fully franked dividend of 25.5 cents per share, bringing its full-year dividend to 42.5 cents per share.
- Funds under management increased 12% to $473.1 million.
Driving the top line growth was the solid performance of its Australian and Singapore segments. Revenue in these segments rose 3.5% and 4.3% respectively, offsetting a 3.1% decline in its New Zealand segment.
Although the company posted a stunning 29.4% rise in net profit, I feel it is important to point out that the majority of this growth came from a $16 million net gain on undelivered prepaid contracts after tax.
Taking this gain out of the equation for both FY 2015 and FY 2016's results would mean net profit after tax growth of 11.9%. Although this growth is slower than the headline result, I still believe it's a strong performance nonetheless.
The company has however lost around 77 basis points of market share during the year according to management.
Increased competitor activity and lower pricing in Queensland, Western Australia, and northern New South Wales hit the company. Whilst it was a similar story in New Zealand and Singapore as well, pleasingly the company made modest market share gains in Victoria and South Australia.
Management does have plans to address the market share decline. It believes improvements in product offering and branding, further acquisitions, new locations, and a renewed focus on local leadership provides significant opportunities to grow market share.
Is it a buy?
Whilst its shares may be priced at 20x earnings, I believe this is a fair multiple for InvoCare considering its defensive qualities and market-leading position.
I believe management's plan to address market share declines will not only stop the rot, but will also expand its market-leading position even further. I expect this to allow the company to grow earnings in the high single digits for the foreseeable future.
At this point in time I would recommend an investment in InvoCare ahead of consumer discretionary peers such as Navitas Limited (ASX: NVT) and Idp Education Ltd (ASX: IEL).
